-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfWOAJMY8YV2mgosm513ffMnYjIMJOoo+G8Ak6svyr9B9KWOXuCqVMgfGnQLEg3k BmHoFpbhihOV8fVQoFYmzA== 0000950156-97-000940.txt : 19971117 0000950156-97-000940.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950156-97-000940 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWAY FINANCIAL INC CENTRAL INDEX KEY: 0001041753 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 043368379 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23129-33 FILM NUMBER: 97719807 BUSINESS ADDRESS: STREET 1: 9 MAIN ST CITY: BERLIN STATE: NH ZIP: 03750 BUSINESS PHONE: 6037521171 MAIL ADDRESS: STREET 1: 9 MAIN ST CITY: BERLIN STATE: NH ZIP: 03750 10-Q 1 NORTHWAY FIN. FORM 10-Q QUARTERLY REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1997 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________________ to _________________ Commission File Number 000-23129 NORTHWAY FINANCIAL, INC (Exact name of registrant as specified in its charter) New Hampshire 04-3368579 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 Main Street Berlin, New Hampshire 03570 Address of principal executive offices (Zip Code) (603) 752-1171 (Registrant's telephone number, including area code) No Change (Former name, former address and former fiscal year, if changed since last year) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. At October 31, 1997, there were 1,731,969 shares of common stock outstanding, par value $1.00 per share. ================================================================================ INDEX NORTHWAY FINANCIAL, INC. PART I. FINANCIAL INFORMATION PAGE Item 1 Financial Statements (Unaudited) Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 .............................................. 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1997 and 1996 ....................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 .............................. 5 Notes to Consolidated Financial Statements ..................... 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 10 PART II OTHER INFORMATION Item 1 Legal Proceedings .............................................. 15 Item 2 Changes in Securities .......................................... 15 Item 3 Default Upon Senior Securities ................................. 15 Item 4 Submission of Matters to a Vote of Security Holders ............ 15 Item 5 Other Information .............................................. 15 Item 6 Exhibits and Reports of Form 8-K ............................... 15 Signatures ................................................................ 16 -2- NORTHWAY FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) SEPT. 30, DEC. 31, (Dollars in thousands, except per share data) 1997 1996 - -------------------------------------------------------------------------------- Assets: Cash and due from banks .............................. $ 11,329 $ 14,257 Federal funds sold ................................... 10,150 3,025 Loans held-for-resale ................................ 294 58 Interest bearing deposits ............................ 94 279 Investment securities available-for-sale ............. 62,480 88,628 Investment securities held-to-maturity ............... 16,671 12,199 FRB stock ............................................ 80 80 FHLB stock ........................................... 1,958 1,822 Loans ................................................ 264,969 241,102 Unearned income .................................... (569) (719) Allowance for possible loan losses ................. (4,014) (3,941) --------- --------- Loans, net ......................................... 260,386 236,442 --------- --------- Real estate acquired by foreclosure or substantively repossessed ....................... 377 202 Accrued interest receivable .......................... 2,138 2,611 Deferred income taxes ................................ 1,639 2,048 Premises and equipment, net .......................... 8,834 8,765 Deposit purchase premium ............................. 1,236 1,462 Other assets ......................................... 2,855 703 --------- --------- Total assets ..................................... $ 380,521 $ 372,581 ========= ========= Liabilities and stockholders' equity: Liabilities: Interest bearing deposits ............................ $ 281,030 $ 286,055 Non-interest bearing deposits ........................ 37,006 36,028 Repurchase agreements ................................ 7,346 4,620 Mortgagors' escrow accounts .......................... 573 232 Federal Home Loan Bank Advances ...................... 12,390 8,703 Federal funds purchased .............................. 50 -- Other liabilities .................................... 5,179 3,280 --------- --------- Total liabilities ................................ 343,574 338,918 --------- --------- Stockholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized: outstanding-none ........ -- -- Common stock, $1 par value; 9,000,000 shares authorized: 1,731,969 shares issued and outstanding . 1,732 1,732 Additional paid in capital ........................... 2,101 2,101 Retained earnings .................................... 33,429 30,663 Unrealized loss on investment securities available- for-sale, net ....................................... (315) (833) --------- --------- 36,947 33,663 ========= ========= Total liabilities and stockholders' equity ........... $ 380,521 $ 372,581 ========= ========= The accompanying notes are an integral part of these financial statements. -3- NORTHWAY FINANCIAL, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, (Dollars in thousands, except per share data) 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Interest and dividend income: Loans ........................................... $ 6,057 $ 5,281 $ 17,217 $ 15,594 Investment securities available-for-sale ........ 923 1,381 3,344 3,990 Investment securities held-to-maturity .......... 250 271 738 843 Federal funds sold .............................. 195 77 328 276 Interest bearing deposits ....................... 2 25 6 114 ---------- ---------- ---------- ---------- Total interest and dividend income ........... 7,427 7,035 21,633 20,817 ---------- ---------- ---------- ---------- Interest expense: Deposits ....................................... 2,733 2,840 8,106 8,562 Borrowed funds ................................. 321 238 902 659 ---------- ---------- ---------- ---------- Total interest expense ....................... 3,054 3,078 9,008 9,221 ---------- ---------- ---------- ---------- Net interest and dividend income ............. 4,373 3,957 12,625 11,596 Provision for possible loan losses ................ 140 134 395 386 ---------- ---------- ---------- ---------- Net interest and dividend income after provision for possible loan losses ......... 4,233 3,823 12,230 11,210 ---------- ---------- ---------- ---------- Noninterest income: Service charges on deposit accounts and fees ... 202 203 628 623 Securities gains, net .......................... 21 69 350 170 Other .......................................... 126 126 400 359 ---------- ---------- ---------- ---------- Total noninterest income ..................... 349 398 1,378 1,152 ---------- ---------- ---------- ---------- Noninterest expense: Salaries and employee benefits ................. 1,389 1,364 4,162 3,965 Office occupancy and equipment ................. 427 437 1,279 1,304 Amortization of deposit purchase premium ....... 75 86 226 251 Merger related expenses ........................ 308 3 822 23 Other .......................................... 772 848 2,359 2,421 ---------- ---------- ---------- ---------- Total noninterest expense .................... 2,971 2,738 8,848 7,964 ---------- ---------- ---------- ---------- Income before income tax expense ............. 1,611 1,483 4,760 4,398 Income tax expense ................................ 578 495 1,589 1,485 ---------- ---------- ---------- ---------- Net income ................................... $ 1,033 $ 988 $ 3,171 $ 2,913 ========== ========== ========== ========== Per share data: Net income ........................................ $ 0.60 $ 0.57 $ 1.83 $ 1.67 Cash dividends declared ........................... $ 0.00 $ 0.00 $ 0.23 $ 0.19 Weighted average number of common shares .......... 1,731,969 1,731,969 1,731,969 1,731,969 The accompanying notes are an integral part of these financial statements.
-4- NORTHWAY FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 1997 1996 ------------------------- (Dollars in Thousands) Cash flows from operating activities: Net income ......................................................... $ 3,171 $ 2,913 Adjustments to reconcile net income to net cash provided by operating activities: Provision for: Possible loan losses ......................................... 395 386 Depreciation and amortization ................................ 743 719 Deferred income taxes ........................................ 83 (167 Write down of real estate acquired by foreclosure ............ 5 44 Gains on sales of investment securities available-for-sale, net (349) (170) Loss on sale of premises and equipment, net ................... 50 8 Accretion of (discount) and amortization of premium on investment and mortgage-backed securities, net ............. 187 344 Decrease in unearned income, net ............................... (150) (28) Gains on sales of real estate acquired by foreclosure or substantively repossessed ................................. (36) (19) Decrease in accrued income receivable .......................... 473 23 Increase in other assets ....................................... (2,152) (201) Increase in other liabilities .................................. 1,899 353 -------- -------- Net cash provided by operating activities .................... 4,319 4,205 -------- -------- Cash flows from investing activities: Net decrease in interest bearing deposits .......................... 196 1,178 Proceeds from sales of investment securities available-for-sale .... 19,188 1,276 Proceeds from maturities of investment securities held-to-maturity . 1,793 3,346 Proceeds from maturities of investment securities available-for-sale 15,323 8,653 Purchase of investment securities available-for-sale ............... (9,898) (22,563) Purchase of investment securities held-to-maturity ................. (6,456) (6,810) Principal payments received on mortgage-backed securities .......... 2,596 3,271 Net increase in loans .............................................. (24,548) (16,546) Net (increase) decrease in loans held for resale ................... (236) 144 Proceeds from sales of real estate acquired by foreclosure or substantively repossessed ......................... 214 470 Proceeds from sale of premises and equipment ....................... 290 -- Additions to premises and equipment ................................ (925) (866) -------- -------- Net cash used in financing activities ........................ (2,463) (28,447) -------- -------- Cash flows from financing activities: Net increase (decrease) in deposits ................................ (4,047) 6,154 Cash received from acquisition of branch ........................... -- 6,354 Increase in mortgagors' escrow accounts ............................ 341 181 Net increase in borrowed funds ..................................... 6,463 2,877 Cash dividends ..................................................... (405) (223) -------- -------- Net cash used in financing activities ........................ 2,352 15,343 -------- -------- Net increase (decrease) in cash and cash equivalents ................. 4,208 (8,899) Cash and cash equivalents at beginning of period ............. 17,282 23,687 -------- -------- Cash and cash equivalents at end of period ................... $ 21,490 $ 14,788 ======== ======== Cash paid during the year for: Interest ........................................................... $ 9,058 $ 9,167 ======== ======== Income taxes ....................................................... $ 1,078 $ 1,574 ======== ======== Supplemental disclosures of non-cash activities: Loans transferred to real estate acquired by foreclosure or substantively repossessed ......................... $ 510 $ 275 ======== ======== Loans charged off, net of recoveries ............................... $ 246 $ 467 ======== ======== Financed sales of real estate acquired by foreclosure .............. $ 193 $ 63 ======== ======== The accompanying notes are an integral part of these financial statements.
-5- NORTHWAY FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1997 1. Basis of Presentation. The unaudited consolidated financial statements of Northway Financial, Inc. and its two wholly owned bank subsidiaries ("the Corporation") included herein have been prepared by the Corporation in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The Corporation, however, believes that the disclosures are adequate to make the information presented not misleading. All prior period amounts in the Form 10Q have been restated to reflect the reorganization of the Corporation on September 30, 1997 into a multi-bank holding company. Refer to Note 4 for further discussion of the holding company reorganization and merger transactions. The amounts shown reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial statements for the periods reported. The results of operations for the three and nine months ended September 30, 1997 and 1996 are not necessarily indicative of the results of operations for the full year or any interim period. 2. Allowance for Possible Loan Losses Analysis of the allowance for possible loan losses for the nine months ended September 30, 1997 and 1996 is as follows: 1997 1996 ---- ---- (Dollars in thousands) Balance beginning of period $3,941 $3,866 Chargeoffs 505 500 Recoveries 183 110 ------ ------ Net chargeoffs 322 390 Provision for possible loan losses 395 386 ------ ------ Balance at end of period $4,014 $3,862 ====== ====== -6- NORTHWAY FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1997 3. Commitments and Contingencies At September 30, 1997, the Corporation had the following off-balance sheet financial instruments whose contract amounts represent credit risk: Contract or Notional Amount --------------------------- (Dollars in thousands) Commitments to extend credit $26,795 Standby letters of credit and financial guarantees written $ 480 Commercial letters of credit $ -0- Foreign exchange contracts $ -0- 4. Formation of Northway Financial, Inc. Northway Financial, Inc. ("Northway") is a New Hampshire Corporation organized on March 7, 1997 for the purpose of becoming the holding company of The Berlin City Bank ("BCB") pursuant to a reorganization transaction (the "BCB Reorganization") by and among Northway, BCB and a subsidiary of BCB, and thereafter, effecting the merger (the "Merger") between Northway and Pemi Bancorp, Inc. ("PEMI"), pursuant to which Northway became the holding company for PEMI and its wholly owned subsidiary, Pemigewasset National Bank ("PNB"). The BCB Reorganization and the Merger were consummated on September 30, 1997. The Merger was treated as "pooling of interests" for accounting purposes. Other than matters relating to corporate organization and capitalization, and other matters incidental to completion of the BCB Reorganization and Merger, Northway has not engaged in any business activity. As of September 30, 1997, Northway's business is to own all of the common stock of BCB and PNB. BCB is a trust company chartered under the laws of the State of New Hampshire. BCB has seven banking offices in New Hampshire through which it provides a range of bank-related services. PNB is a national banking association organized under the laws of the United States. PNB has five branches located in New Hampshire through which it provides a range of bank-related services. -7- NORTHWAY FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1997 The Merger was effected in accordance with the terms and conditions of the Agreement and Plan of Merger, dated as of March 14, 1997, by and among BCB, Northway, PEMI, and PNB (the "Merger Agreement"). Under the terms of the Merger Agreement (i) Northway organized a New Hampshire trust company, Berlin Interim Trust Company ("BITC"), (ii) BCB merged with and into BITC while retaining the name "The Berlin City Bank" and, as a result of which, became a wholly owned subsidiary of Northway, and (iii) following the BCB Reorganization, PEMI merged with and into Northway, with Northway being the surviving corporation ("the Merger"). As a result of the foregoing transactions, Northway is the bank holding company for BCB and PNB and each of BCB and PNB are wholly owned subsidiaries of Northway. In connection with the BCB Reorganization and the Merger, respectively, (i) each outstanding share of BCB common stock was converted into 16 shares of Northway common stock, and (ii) each outstanding share of PEMI common stock was converted into 1.0419 shares of Northway common stock. 5. Supplemental Disclosure of Separate Results The financial statements reflect the combined results of The Berlin City Bank and Pemi Bancorp, Inc. Supplemental disclosure of the separate results of the two banks for periods prior to the merger are as follows: Berlin City Pemi Northway Bank Bancorp Financial ----------- ------- --------- (In thousands except per share data) July 1, 1997 to September 30, 1997 Net interest income $2,770 $1,603 $4,373 Net income 756 277 1,033 Net income per share $ 0.44 $ 0.16 $ 0.60 July 1, 1996 to September 30, 1996 Net interest income $2,438 $1,519 $3,957 Net income 648 340 988 Net income per share $ 0.37 $ 0.20 $ 0.57 -8- NORTHWAY FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1997 Berlin City Pemi Northway Bank Bancorp Financial ----------- ------- --------- (In thousands except per share data) January 1, 1997 to September 30, 1997 Net interest income $8,010 $4,615 $12,625 Net income 2,388 783 3,171 Net income per share $ 1.38 $ 0.45 $ 1.83 January 1, 1996 to September 30, 1996 Net interest income $7,110 $4,486 $11,596 Net income 1,946 967 2,913 Net income per share $ 1.12 $ 0.55 $ 1.67 -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Introduction The following discussion and related consolidated financial statements include Northway Financial, Inc. (the "Corporation") and its wholly-owned subsidiaries, The Berlin City Bank and Pemigewasset National Bank. Certain statements in this Form 10-Q, in the Corporation's press releases, and in oral statements made by or with the approval of an authorized executive officer of the Corporation, constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (the "Act") and within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 promulgated thereunder. The words "believe," "expect," "anticipate," "intend," "estimate," "project" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Corporation to differ materially from anticipated future results, performance or achievements expressed or implied by such forward- looking statements. The Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The following important factors, among others, may have affected the Corporation and its subsidiaries in the past and could in the future affect the actual results of operations of the Corporation, and could cause the actual results of operations for subsequent periods to differ materially from those set forth in, contemplated by, or underlying any forward-looking statement made herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Corporation must comply, including the effect of the cost of such compliance; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Corporation's organization, compensation and benefit plans; (iii) the effect on the competitive position of the Corporation's subsidiaries within their respective market areas resulting from increased consolidation within the banking industry and increased competition from larger regional and out-of-state banking organizations, as well as from nonbank providers of various financial services; (iv) the effect of unforeseen changes in interest rates, loan default and charge-off rates; (v) changes in deposit levels necessitating increased borrowing of fund loans and investments; (vi) the effect of changes in the business cycle and downturns in the New Hampshire New England, and national economies; (vii) the factors detailed in the section titled "Risk Factors" in the Corporation's Proxy Statement/Prospectus, dated Aug. 12, 1997; and (viii) changes in the assumptions used in making such forward-looking statements. Though the Corporation has attempted to list comprehensively these important factors, the Corporation wishes to caution investors that other factors may in the future prove to be important in affecting the Corporation's results of operations. New factors emerge from time to time and it is not possible for -10- management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward looking statements. Financial Condition Through the first nine months of 1997, the Corporation's total net income was $3.2 million, or $1.83 per share, compared to $2.9 million, or $1.67 per share, for the same period in 1996. The Corporation's total assets were $381 million compared to $373 million at December 31, 1996, an $8 million, or 2%, increase. Net loans increased $24 million during this period while investment securities decreased $21 million principally due to the Corporation's sale of securities to fund loan growth. Cash and cash equivalents increased $4 million to $21 million. Total deposits decreased $4 million, which was offset by increases in repurchase agreement and other borrowings of $6 million. The Corporation maintains an allowance for possible loan losses to absorb future chargeoffs of loans in the existing portfolio. The allowance is increased when a loan loss provision is recorded in the income statement. When a loan, or portion thereof, is considered uncollectible, it is charged against this allowance. Recoveries on amounts previously charged off are added to the allowance when collected. On September 30, 1997 the allowance for possible loan losses was $4.0 million, or 1.51% of total loans, as compared to $3.9 million, or 1.63% of total loans for September 30, 1996. The adequacy of the allowance for possible loan losses was based on an evaluation by each bank's management and Board of Directors of current and anticipated economic conditions, changes in the diversification, size and risk within the loan portfolio, and other factors. Nonperforming loans totalled $1.8 million as of September 30, 1997, compared to $3.0 million at December 31, 1996. The ratio of nonperforming loans to total loans was 0.69% as of September 30, 1997 compared to 1.23% at December 31, 1996 and the ratio of nonperforming assets to total assets was 0.58% as of September 30, 1997 compared to 0.87% at December 31, 1996. Results of Operations The Corporation reported net income of $1.0 million, or $0.60 per share, for the three months ended September 30, 1997 as compared with $988,000, or $0.57 per share, for the same period in 1996. The increase reflects improvement in net interest income of $416,000 resulting from the shifting of funds from investment securities to loans. In addition, a lower cost of funds resulted in lower interest expense for the Corporation. -11- Noninterest income decreased $49,000 as a result of a decrease in net securities gains from $69,000 in the third quarter of 1996 to $21,000 in the third quarter of 1997. Noninterest expense increased $233,000 for the quarter ended September 30, 1997 compared to the same period last year due primarily to increases in merger related expenses of $305,000. Decreases in advertising, professional fees, FDIC insurance, insurance and amortization of intangibles partially offset this increase. The Corporation generated net income of $3.2 million, or $1.83 per share, for the nine month period ended September 30, 1997 compared to net income of $2.9 million, or $1.67 per share, for the same period in 1996. Net interest income for the nine months ended September 30, 1997 was $12.6 million, an increase of $1.0 million over the same period in 1996. This improvement is primarily due to the shift of funds from investment securities into loans as well as a decrease in the Corporation's cost of funds. The provision for possible loan losses increased slightly to $395,000 for the nine months ended September 30, 1997 from the $386,000 reported for the comparable period in 1996. Noninterest income for the nine months ended September 30, 1997 increased $226,000 to $1.4 million as a result of increased securities gains of $180,000 as well as improvement in other noninterest income of $41,000. Total noninterest expense was $8.8 million for the nine months ended September 30, 1997 compared to $8.0 million for the same period last year. The increase of $884,000 was primarily due to increased merger related expenses of $799,000. In addition, increases in salaries and benefits of $197,000 were reported due to new branch openings as well as increased loan staff to handle the increase in the loan portfolio. Liquidity Banking institutions measure liquidity as the ability to meet unexpected deposit withdrawals of a short-term nature and to meet increased loan demand. It is management's objective to ensure a continuous ability to meet cash needs as they arise. Given the uncertain nature of customer demands as well as the Corporation's desire to take advantage of earnings enhancement opportunities, the Corporation must have available adequate sources of on and off balance sheet funds that can be acquired in time of need. Accordingly, in addition to the liquidity provided by balance sheet cash flows, liquidity is supplemented with alternative sources such as Fed Funds and Lines of Credit, Federal Home Loan Bank Advances, wholesale and retail repurchase agreements and access to the capital markets. The Corporation's securities portfolio is classified primarily as available-for-sale, which provides the flexibility to sell certain securities based upon changes in economic or market conditions, interest rate risk and the Corporation's financial position and liquidity. -12- As of September 30, 1997 the Corporation's liquidity ratio was 19.9% compared to 24.0% at December 31, 1996. In addition, the Corporation's bank subsidiaries have the ability to borrow funds from the Federal Home Loan Bank, thereby greatly enhancing its liquidity positions. Management believes each bank subsidiary's liquidity is adequate. Interest Rate Risk Interest rate risk is defined as the exposure of the Corporation's net income or financial position to adverse movements in interest rates. The Corporation manages its interest rate risk within policies and limits established by the Asset and Liability Management Committee (ALCO) and approved by the Board of Directors (Board). ALCO issues strategic directives to specify the extent to which Board-approved rate risk limits are utilized, taking into account the results of the risk modeling process as well as other internal and external factors. In setting desirable levels of interest rate risk, ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in the outlook on interest rates and regional economies, liquidity, business strategies, and other factors. ALCO uses three key measurements to monitor interest rate risk: (i) the interest rate sensitivity "gap" analysis; (ii) a "rate shock" to measure earning's volatility due to an immediate increase or decrease in market rates of interest; and (iii) simulation of net interest income under alternative balance sheet and interest rate scenarios. -13- Interest rate gap analysis Cumulatively Repriced Within ---------------------------------------------------------------------------------- Dollars in thousand, 3 Months 4 to 12 12 to 24 2 to 5 After 5 by repricing date or Less Months Months Years Years Total - -------------------------------------------------------------------------------------------------------------------------- Total Interest sensitive assets: Federal Funds Sold 10,150 0 0 0 0 10,150 Investment available for sale 6,689 12,276 15,441 17,331 10,837 62,574 Investment held to maturity 743 9,079 1,913 3,548 1,388 16,671 FHLB Stock/FRB Stock 0 0 0 0 2,038 2,038 Loans (fixed and adjustable rate) 92,297 79,571 30,244 36,805 18,763 257,680 ------- -------- ------ ------ -------- ------- Total interest sensitive assets 109,879 100,926 47,598 57,684 33,026 349,113 ======= ======== ====== ====== ======== ======= Interest sensitive liabilities: Certificates of deposit 33,758 90,868 24,248 4,136 0 153,010 Other deposits 21,616 19,589 0 15,362 109,032 165,599 Borrowed funds 5,798 10,534 3,377 0 77 19,786 ------- -------- ------ ------ -------- ------- Total interest sensitive liabilities 61,172 120,991 27,625 19,498 109,109 338,395 ======= ======== ====== ====== ======== ======= Net interest rate sensitivity gap 48,707 (20,065) 19,973 38,186 (76,083) 10,718 Cumulative net interest rate sensitivity gap 48,707 28,642 48,615 86,801 10,718 21,437 Cumulative net interest rate sensitivity gap as a percentage of total assets 12.80% 7.53% 12.78% 22.81% 2.82% Cumulative interest sensitivity gap as a percentage of total interest-earning assets 13.95% 8.20% 13.93% 24.86% 3.07% Cumulative net interest earning assets as a percentage of cumulative interest bearing liabilities 179.62% 115.72% 123.17% 137.86% 103.17%
Capital The Corporation's Tier 1 and Total Risk Based Capital was 16.57% and 17.82%, respectively, at September 30, 1997. The Corporation's leverage ratio at September 30, 1997 was 9.49%. As of September 30, 1997, the capital ratios of the Corporation and all of it's banking subsidiaries exceeded the minimum capital ratio requirements of the "well capitalized" category under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). -14- PART II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders Pursuant to a Unanimous Written Consent the Stockholders in Lieu of a Special Meeting effective September 23, 1997, The Berlin City Bank, acting in its capacity as the sole stockholder of the Corporation ratified and approved the BCB Reorganization and the Merger and the transactions contemplated thereby, as described in the Proxy Statement/Prospectus dated August 12, 1997. Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number (27) Financial Data Schedule (b) The Corporation did not file any Reports on Form 8-K during the quarter ended September 30, 1997. -15- SIGNATURES Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. NORTHWAY FINANCIAL, INC. November 13, 1997 BY: /s/ William J. Woodward ---------------------------- William J. Woodward President & CEO November 13, 1997 BY: /s/ David J. O'Connor ---------------------------- David J. O'Connor Exec. Vice President & CFO -16- EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION. 1,000 9-MOS DEC-31-1996 SEP-30-1997 11,329 94 10,150 0 62,480 18,709 18,694 264,969 4,014 380,521 318,609 7,396 5,179 12,390 0 0 1,732 35,215 380,521 17,217 4,082 334 21,633 8,106 9,008 12,625 395 350 8,848 4,760 4,760 0 0 3,171 1.83 1.83 8.11 2,459 12 1,398 3,929 3,941 505 183 4,014 3,412 0 602
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